Vodafone: Q1 results and an IPO in 2021

There are positives in these numbers, and the flotation of the phone masts business is welcome news.

Vodafone (LSE:VOD) has suffered in the face of the pandemic along with many others, but positive underlying prospects remain in evidence.

The previous themes from the full-year results have carried over into the new trading year, with the pandemic having material impacts on the day to day business during the first quarter of Vodafone’s financial year ended 30 June.

On the one hand, the spike in data traffic has been a boon for the company, while also underlining the efficiency and dependability of its services. Less positively, however, lower roaming revenues as a result of decreasing international travel (visitor revenues in the quarter were down by 70%) along with corporate project delays in the period, have a punched a hole in income.

Even so, an overall decline in revenues of 1.3% is a fair result, and is partly attributable to the enhanced performance in Germany, which is clearly taking shape. Fixed service revenues grew by 2.4% in the quarter, while 74,000 cable customers were added. This is before the full effects of cross-selling opportunities to tempt customers into a “converged” pack offering several services and the expected cost savings wash through.

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This remains a difficult time in the industry, however, given the enormous drain on capital through ongoing spectrum and investment costs generally. At the same time, the ferocity of competition remains in a market where, from the consumer’s standpoint, there is little differentiation other than cost. 

As expected, the IPO of Vantage Towers, Vodafone’s phone mast business, is likely to take place next year.

The realisation of value will be of benefit to shareholders but, more importantly, will give Vodafone the opportunity to pay down some of its bloated net debt position, one which has most recently been increased by the acquisition of Liberty Global’s German assets.

The company is also hedging its bets, with the announcement that it intends to retain a majority stake in Vantage Towers after the IPO, with an eye on the strategic nature of the tower infrastructure and the potential for further value.

More recently, the investing tide has turned in Vodafone’s favour, with the shares up 20% in the last three months, or 31% since the March low. This has contributed to an improved annual performance, whereby the shares are down just 1.5% over the last year, as compared to a decline of 17% for the wider FTSE 100 index. 

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That being said, there is still a considerable way to go for Vodafone to regain its former glories, with a 43% decline in the price over the last three years a sign of the challenge ahead. 

Vodafone has a loyal following of optimistic investors, based on a number of factors such as its sheer size, cash generative ability and clearly visible prospects. The punchy 6% dividend yield is another attraction, particularly in the current environment where many companies have simply chosen not to pay out at all. 

The market consensus of the shares as a ‘strong buy’ has been in place for some time now and there seems little in this update to disturb that view.